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Medicine & Chronic Illness

PERSPECTIVE

The Business Case For Quality

Business case for whom? Quality improvements in health care have different financial implications for the parties involved, which in turn differ by payment methodology. Using Mark Chassin and colleagues’ definitions, in a fee-for-service environment employers and plans have a positive business case when overuse is reduced, but providers have a negative one.¹ When underuse improves, providers increase revenues, but payers increase costs. When fewer preventable errors occur (misuse improved), payers spend less, but providers see less revenue. In general, in a prepayment system (such as capitation) the business cases are reversed. There are some examples in which reimbursements act like investments and reduce overall costs; for example, increased HgbA1C testing in diabetics leads to fewer hospitalizations, but rigorous evidence is lacking in all but a few cases.²

To keep the axe sharp, we ought never to use the term business case without immediately asking, "For whom?" We should not use the term quality improvement without asking, "What type?" And we ought never to answer either question without asking, "Under what payment system?" Developing a business case for quality will require a very deliberate approach, with all economic parties at the table. From a tactical perspective, it would be optimal to begin by tackling at least two initiatives simultaneously, each with a quality reward for one of the parties.

What do we mean by rewards? The Leapfrog Group, which consists of eighty-six private-sector companies with Medicare and the Office of Personnel Management (OPM) as liaison members, has as one of its three purchasing principles rewarding provider quality. Leapfrog has chosen three types of rewards: increasing volume, public recognition, and unit price. Providers will value these rewards differently. A well-known tertiary care center will not find increasing recognition very meaningful. Hospitals struggling with overcrowding will find additional volume a problem rather than a reward. Under capitation, even those providers who desire volume could be negatively affected if patients with multiple complications were referred without risk-adjusted reimbursement.

It is likely that increased unit prices would be uniformly effective as rewards. At present there are few models that connect monetary rewards to quality at the provider level. Leapfrog has spurred some innovative thinking, however. Empire Blue Cross has approached a number of Leapfrog employers with the idea of higher diagnosis-related group (DRG) payments for hospitals that agree to meet the three leaps. Although this idea is still in development, the quantitative rationale is to estimate fee-for-service savings as a result of fewer medication errors and improved surgical and intensive care unit (ICU) outcomes and give a percentage of the savings back to the hospital. General Electric is using six-sigma methodology with provider systems in Boston to design a system to reward providers. Five core questions are being addressed: What is quality performance for a provider; what rewards do providers need or want for that performance; how does quality information get disseminated to patients; how do purchasers prove increased value; and which systems are needed to sustain the program?

To keep the axe sharp, we ought to remember that rewards are in the eye of the beholder. Also, a lot of detail lies between a sound idea and its execution.

Who is going to pay? Despite the two examples above, we should be cautious about expecting too much. Private purchasers believe that they have been overpaying for health care, given the reports of waste by RAND and others. In the face of the current economic slowdown, it is unlikely that employers will simply increase their payments. Employers will address this as a zero-sum game, at best: Whatever increase they pay for high quality, they will expect to pay less for poor quality or see strong evidence that there will be a return. Health plans will likely feel the same way, given their challenging premium environment. From a business-case perspective, plans will expect to be reimbursed for their investment in the new pay-for-quality methodologies. They are understandably most concerned about a "dull axe": Many have invested considerable resources in quality improvement over the past decade but have seen only minimal reward in increased volume or unit prices.

There is a lurking unintended consequence as well. Purchasers believe that a working market will not emerge until consumers are fully engaged. However, they are moving faster in educating employees about provider quality than they are in making them price-sensitive. This imbalance could lead to the same distortion in supply and demand as has direct-to-consumer drug advertising. In the absence of price-sensitivity, the limited supply of high-scoring providers could lead to unfettered demand and raise prices far beyond any conceivable return.

To keep the axe sharp, we ought to remember that a reward to a provider is an additional cost to a payer, and, in the end, quality has to "pay" for all parties.

Next steps. Coye is right to focus on chronic care as that part of the disease map in which the emergence of a "Toyota" could have the most impact. I also agree with her that it is a properly aligned payment system that will fuel its creation. But whether in building a Toyota or chopping down a tree, we need to be very sharp about what we mean and proceed carefully with all affected parties involved.

Editor's Notes

 
Robert Galvin is director, Global Health Care, for General Electric Company in Fairfield, Connecticut. Health Affairs invited his comments on the paper by Molly Joel Coye, which precedes this Perspective. o r

NOTES

Top NOTES

 

1. M. Chassin et al., "The Urgent Need to Improve Health Care Quality," Journal of the American Medical Association 280, no. 11 (1998): 1000–1005.
2. R. Rubin et al., "Clinical and Economic Impact of Implementing a Comprehensive Diabetes Management Program in Managed Care," Journal of Endocrinology and Metabolism 83, no. 8 (1998): 2635–2642.

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